ERB explains fuel price review mechanism

THE Energy Regulation Board says the next price assessment for petroleum products will only be done on subsequent importation of petroleum feedstock and the accompanying finished products.

REB public relations manager Kwali Mfuni stated yesterday that the board had noted calls by some stakeholders to reduce fuel prices in view of reduction in international oil prices.

She stated that having effected new fuel price hikes on October 2, the cargo is yet to be exhausted.

Mfuni stated that fuel prices are reviewed only upon purchase of a cargo of petroleum feedstock and finished petroleum products by the government.

She stated that the pricing of petroleum products was conducted on a sixty-day cycle.

Mfuni stated that since the cargo for the Zambian market usually lasts for about sixty days, the pricing cycle tends to reflect that period.

She advised that fuel prices were determined on the basis of the price at which each cargo was procured and ultimately landed onto the Zambian market using the Cost Plus Model (CPM).

Mfuni stated that the CPM provides for price stability for the duration of a consignment and as such does not provide for immediate response to changes in price fundamentals as provided for under the Import Parity Pricing framework (IPP), an alternate model which some countries use.

“The IPP model allows prices to change on a monthly basis in line with exchange rates and international oil price changes. However, this system was found to be unsuitable by most stakeholders when Zambia used the IPP Framework between 2004 and 2008. Most stakeholders found the IPP model to be unsustainable and unpredictable for business planning. Consequently, this pricing mechanism was changed to CPM following consultations with players and stakeholders in the petroleum sub-sector,” she stated.

Mfuni stated that as such, the ERB uses CPM to price petroleum products.

“In this regard, having effected new fuel prices on 2nd October 2018, it should be noted that the cargo is yet to be exhausted. As we have stated before, the key factors, which are prone to frequent change, namely the exchange rate and international oil prices directly impact the price at which a particular consignment is sold. Against this back ground, it would not be prudent to speculate in the absence of any importation as some parameters may have shifted by the time of the next consignment,” she stated.

She appealed to interested parties and the public to allow the due process to determine prices for the next importation of petroleum pro ducts.

Mfuni stated that at that point assessments will be conducted then and the public will be duly informed as is always the case.

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